Cryptocurrencies and Modern Economy

This is the second post in a three-part series featuring our blog competition winners from Michigan State University. The author of today's post is Xiyou Xu.

The emergence of cryptocurrencies has shaken up the economic establishments around the world. In fact, the phenomenon of such virtual currencies is thoroughly studied by the economists to understand how they impact the global financial system. As a result, such cryptocurrencies like Bitcoin have been examined regarding contrast to existing physical alternatives, and various experts have responded to its uprising.

The link between millennials and cryptocurrencies is apparent looking at the level of input they have made to popularize new approach to organize one’s finances. Among the reasons which make the millennials so passionate about cryptocurrencies, the repeating economic calamities like 2008 global financial crisis undermine the trust to traditional financial services and market system. One of the indicators that prove decreasing interest of millennials towards traditional banking services is 2015 Goldman Sachs study. The research proves that millennials do not have the great interest in holding a credit card giving the preference to such payment platforms like PayPal. The weight of the flat currencies is also excessively supported by the bank system that cuts off the connection between the mentioned currencies and cryptocurrencies. It means that the cryptos are under flat money trading which is fueled artificially not allowing to apply Bitcoin for more essential tasks.

 Such companies like Longfin Corp. serve as the proof that modern business wants to benefit from the rise of the cryptos. Longfin ended up with the stock advancement of over 2,000 percent in a week after the announcement of buying blockchain-empowered global micro-lending solutions provider.The hysteria around cryptocurrencies and related public statements could be explained because of the accidental surges which uplift the value of less popular cryptos. By the time Bitcoin reached the cost of $15,000 in December of 2017, several cryptocurrencies had shown the growth of 100 percent and even more. However, the example of Longfin proves that markets desire more supply of enterprise to be connected to the cryptos.

The opinions of business experts about the key cryptocurrency on the market, Bitcoin, vary from appraisal to obvious criticism. Yves Mersch, a member of the European Central Bank executive board, blamed virtual currencies for making the financial system unstable, “At these speeds if you bought a bunch of tulips with Bitcoin they may well have wilted by the time the transaction was confirmed.” The comparison to tulips can be again tracked by the opinion of Nouriel Roubini. He is the American economist who called Bitcoin “much worse” than the tulip mania because of assuming that fundamental value of Bitcoin goes to zero. Warren Buffett, the billionaire investor, told that he would have never invested a penny to Bitcoin because of the negative prediction to each cryptocurrency.

Overall, the rise of such cryptocurrencies like Bitcoin has made the business respond to an issue by assessing the potential of the virtual money to become an alternative to existing flat currencies. The popularity of the cryptos is related to the preferences of millennials towards unconventional financial services, while bank system still does not want to recognize the virtuals. Longfin Corp. proves that heavy investment in cryptocurrencies could boost stocks, but there is the risk that the fall of the attached crypto will damage corporate reputation consequently. Business experts like Yves Mersch, Nouriel Roubini, and Warren Buffet also express sincere discouragement towards trending cryptos.